Providers that get high approval ratings from retirement plan advisers have something to brag about—our first survey of advisers’ opinions of defined contribution providers shows they are tough customers, or at least more restrained in their praise than are plan sponsors.
Consider that the average scoring for service to plan sponsors was a mere 4.76 on the same 7.0 scale on which plan sponsors in our sister publication PLANSPONSOR last rated their providers 6.01 (See Chart). The adviser respondents to our survey appear to be focused on those client interests—with service to plan sponsors enjoying a stratospheric 6.69 (See Chart) on the 7.0 priority rating scale. Indeed, the clear (and perhaps obvious) importance of that criterion stands in sharp contrast to the evaluation of the delivery on that promise. Clearly, at least from the standpoint of advisers, providers have room for improvement—to put it mildly.
Different Folks, Different Strokes
One might well expect a more demanding eye from advisers who, after all, generally deal with multiple plan providers on a daily basis, and in a variety of circumstances. Moreover, unlike plan sponsors, which may well jettison (or want to jettison) a provider at the first hint of trouble, such decisions are not always within the immediate purview of the plan’s adviser. Then, whether it is a matter of personal/professional pride in trying to make a troubled selection work, or just a real-world cognizance that such changes can have a seismic impact on plan operations, advisers must, as often as not, try to assuage the perceived gap between service commitment and delivery.
Of course, advisers frequently are the lightning rod for change, and often act as a potent source for demanding better from the provider community. Advisers tend to see more of what the market has to offer—and more often—than the plan sponsor clients whose causes they champion. When it comes to activities such as doing a provider search/evaluation, plan sponsors seldom have a chance to become true experts, after all—and, if they change providers often enough to obtain that expertise, well, they may prove to be a difficult client for the adviser, as well as the provider.
The challenge for advisers—perhaps even more than for plan sponsors—is how to stay fresh with the full range of capabilities that the industry has to offer, to find ways to reach beyond the core group of “comfortable” provider relationships that have been cultivated and nurtured over time. It is one thing to study, to conduct repeated site visits, to review the results of surveys, and to glean insights from colleagues; how does one arrange for a “test drive” with a provider without subjecting a valuable client relationship to risk?
While advisers frequently are viewed by some as having a strong sense of self-interest, that was not evidenced in their provider evaluation priorities. Range/quality of investment options barely bested service to participants in the provider importance attributes, and fee structure for plan sponsors placed well ahead of the adviser fee structure in their evaluations. In fact, adviser fee structure, adviser support post-sale, and adviser sales/marketing support were cited as significantly less important than factors affecting plan sponsor and participant servicing.
Fees are always a sensitive issue, which may explain why the lowest average and median scores in the survey were given to both categories of fee structure-both for the plan sponsor and, even more abysmally, for advisers. Additionally, those structures, already under pressure, are sure to undergo intensive scrutiny and potentially disruptive change in the relatively near future. Consider that, at present, the vast majority of the respondents to this inaugural survey (80.5%) are compensated via asset-based fees, while 38.7% receive some commissions, a scant 3.4% are paid a per-participant fee, and 14.5% report receiving some other form of compensation.
Nonetheless, the laser-like focus on service is borne out in the results. Our Best in Class list of providers chosen by advisers for service to plan sponsors and service to plan participants overlaps in nine out of the 10 provider slots (and two of the top three).
It should come as no surprise, however, that there is also a strong provider focus on nurturing their adviser relationships. That focus is perhaps most evident in the firms that top the Best in Class lists for three separate adviser-focused services that, perhaps not coincidentally, are identical, although the criteria-adviser fee structure, adviser support post-sale, and adviser sales/marketing support-are quite different. Ironically, considering the prominence accorded plan sponsor and participant service in these evaluations, John Hancock, which topped all three adviser-oriented Best in Class lists, failed to crack the top 10 for services for plan sponsors or participants.
Ultimately, of course, the best advisers choose to work with providers that are able to strike a balance-that offer high-quality services to plan sponsors and plan participants and, thus, allow advisers to focus on adding true value to the plan, rather than being relegated to a position of “damage control.” While every individual plan is unique, and every combination of plan and provider has its own chemistry (even more so when an adviser’s influence is added to the equation), the best advisers build their practices by not only getting to know the players, but also understanding those chemistries and sharing a unique ability to craft and help cement long-standing relationships. If the best advisers are not quite able to finish their client’s sentences, they surely are able to anticipate the tone and tenor of the words before they emerge.
These are momentous times for our industry, particularly for financial advisers. The shift from employer-funded defined benefit plans to employer-fostered defined contribution models may present challenges for this nation’s long-term retirement security, but it surely plays to the advantage of a profession dedicated to helping plan sponsors construct the right programs, and participants make the best of them.
In September 2006, approximately 8,000 advisers that service defined contribution (DC) plan clients were sent a link to an online questionnaire developed by PLANADVISER editorial and research staff. The list of advisers was derived entirely from PLANADVISER’s own proprietary database. The questionnaire consisted of approximately 40 questions, including size and scope of the adviser’s qualified plan business, assessments of defined contribution providers, as well as a section on investment evaluation and selection process vis à vis qualified plans, which will be published in the Winter issue of PLANADVISER; 452 total usable esponses were received from qualified plan advisers.
In order to qualify for a Best in Class rating in any of the seven service categories, defined contribution providers needed a minimum of 15 adviser evaluations in that category.
Best in Class awards were given to those providers with top 10 average scores in each service category. In addition to the data published here, customized research reports are available by provider, by adviser type, and by adviser size. For more information, please contact Mike Stratton at (203) 595-3272 or firstname.lastname@example.org.